Market Insider

Wheat Prices Finding Their Footing?

Wheat prices are trying to find some bullish footing as we near the end of November, thanks to heightened geopolitical risk in the Black Sea and U.S. wheat being more competitive on the international markets.

The bigger news coming out of the Black Sea though is Russia having fired upon and then capturing three (3) Ukrainian warships off the coast of Crimea, the annexed region that Russia took control of a few years ago. As it relates to grain markets there are questions about whether or not grain exports in the Azov Sea (where the naval clash took place) will be impacted. Reports are that its business as usual right now but things could easily flair up and we could see an impact on grain flows in the area.

That being said, to date, Russia and Ukraine’s volumes are significantly impacting European exports. In the most recent reporting through November 11th, EU soft wheat exports for the 2018/19 crop year have only totaled 5.9 MMT, down 24% year-over-year. It’s widely expected though that EU wheat exports will start to accelerate in the second half of the crop year as Black Sea exportable supplies start to try up.

Looking quickly at Europe’s 2019/20 prospects, rains have fallen in western and northern areas that were pretty dry this past growing season. Thus, with an ideal seedbed, it appears that EU farmers in these regions are planting more wheat than last year. Strategie Grains estimates that total 2019/20 seeded areas in the EU of soft wheat will be nearly 60.1 million acres, up 6% year-over-year.

Coming back to exports though, there was some buzz last week that France was able to sell a boat of wheat to China. The People’s Republic usually buys their wheat from the U.S. and Australia but this year, the doors are wide open for someone else thanks to the political tension between Washington and Beijing, and the drought in Australia limiting exportable supplies.

On that note, Canadian wheat though is certainly getting bought up by China though. Using data available through the end of September, China is actually the largest importer of Canadian wheat in 2018/19, buying nearly 366,000 MT. This beats out the next largest importer of Canadian wheat, the U.S., by a little more than 15,000 MT. It’s also basically triple what China imported through the same period in 2017/18. Overall, through Week 16 of the 2018/19 crop year, just under 6 MMT of Canadian non-durum wheat has been shipped out. This is up 21.5% year-over-year!

Something to consider is that China, right now, accounts for about 144 MMT of the 2018/19 global wheat carryout, up 12 MMT year-over-year. If we don’t include China in the mix, 2018/19 worldwide wheat ending stocks are expected to drop 24 MMT year-over-year to 123 MMT.

Translation: way less tradeable wheat in the world and the markets are pricing this in accordingly.Specifically, on the FarmLead Marketplace, we’re already seeing more spring wheat basis contracts for 2019/20 being made, as values are anywhere from 20 to 60 cents CAD per bushel better than this time a year ago. Food for thought as you start planning your Plant 2019 campaign.